Key witness testifies at NYC insider trading trial

AP News
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Posted: Mar 22, 2011 10:58 PM
Key witness testifies at NYC insider trading trial

They went to an Ivy League business school together. They vacationed together. And, federal prosecutors say, they schemed together to make inside trades worth millions of dollars _ sometimes in conversations that were caught on tape by the FBI.

The friendship and alleged conspiracy were described in detail on Tuesday by disgraced former Intel executive Rajiv Goel at the Manhattan trial of Raj Rajaratnam, the wealthy hedge fund manager charged in a massive insider trading case.

"We were very good friends and, as a friend, I shared information with him," Goel said when asked why he violated strict confidentiality policies at Intel by leaking inside information to Rajaratnam.

In his first day on the witness stand as a key government witness, Goel repeatedly referred to the two men's kinship as the motive for his admitted securities crimes even as he was betraying the defendant with his testimony.

The relationship grew after the men met at the Wharton School at the University of Pennsylvania. By 2007 _ with Goel a top executive at Intel and Rajaratnam a high-flying hedge fund manager as founder of the Galleon Group LLC _ the two were taking their families on vacations together. They also spoke regularly in person and on the phone.

During one of those conversations, Rajaratnam bragged that "he had a stellar reputation in terms of his ability to predict the financial elements of Intel," Goel said. Rajaratnam also explained that he knew tipsters within the company whom he had rewarded with cars, the witness added.

Soon Goel was providing this own tips.

He told jurors that he had revealed the computer chip maker's quarterly earnings for the first quarter of 2007 to Rajaratnam before the results were publicly announced. He testified that he frantically tracked down Rajaratnam by phone in the Caribbean to make sure he got the information on time to trade on it.

"I was very nervous at that point in time because I'd never done this before," he said of the arrangement.

In 2008, he said, he shared an even bigger secret: The Intel board of directors had agreed behind closed doors to invest up to $1 billion in a joint wireless venture by Sprint and Clearwire.

"There was a general buzz about the deal within Intel ... So people would talk," he said when asked how he was privy to the inside information.

On Monday, prosecutors played a tape of the phone call for jurors.

"Yesterday, our board approved the deal," Goel tells Rajaratnam on the tape.

"I see," Rajaratnam replies.

Goel, a bookish man who gave his age as 52 1/2, testified that Rajaratnam rewarded him by making high-stakes trades for him _ including one based on an illegal tip from another former Wharton classmate _ in his brokerage account that made $800,000. He also said the defendant had lent him $100,000 in 2005 so he could buy a home in California and that he had given him $500,000 in 2006 to help support his aging father in India, though some of the funds ended up in a Swiss bank account.

He praised Rajaratnam as "a very generous person."

Goel was to continue testifying Wednesday.

Rajaratnam, 53, of Manhattan, is charged with conspiracy and security fraud. He is the only one of more than two dozen people charged in the insider trading crackdown to face trial.

Nineteen defendants have pleaded guilty. Some, like Goel, have agreed to cooperate in hopes of winning leniency at sentencing.

The government alleges that Rajaratnam earned more than $50 million illegally by trading on inside information since 2003. The investigation has led to another probe that targets those who pose as researchers in the securities industry as they pass secrets about public companies to hedge funds.

The defense told jurors during opening statements last week that its client had the best research in the business and didn't need to trade illegally. On cross-examination, Rajaratnam's lawyers have confronted government witnesses with news reports they say show that he was using information that was already public.

Rajaratnam's network of hedge funds shut down after his arrest.

Prosecutors said in a letter to the judge they intend to call Goldman Sachs CEO Lloyd Blankfein to testify about the service of former Goldman Sachs board member Rajat Gupta, who has been accused of passing confidential information to Rajaratnam.

The Securities and Exchange Commission has said Gupta gave Rajaratnam secrets he learned from the Goldman board. Gupta has denied the allegations, and his lawyer has said the SEC's case is flawed, premised on "unreliable evidence being used in an attempt to bring down a man of sterling reputation."

Blankfein could testify about Gupta as early as Wednesday.